With restaurants closed for dine-in business in many states, the survival of the restaurant industry—or at least of independent restaurants—depends on takeout and delivery. But a big chunk of the money customers are spending on delivery goes not to the restaurant that makes the food but to the delivery app, like Grubhub, Uber Eats, DoorDash, or Postmates, four companies that have a lock on the restaurant delivery market, and are squeezing restaurants to death. That was vividly illustrated when a Chicago restaurant's post went viral showing the massive fees Grubhub was taking from its sales, leaving the restaurant just $376.54 out of $1,042.63 in prepaid orders.
Now many cities are starting to cap the fees the delivery apps can charge restaurants, and the delivery companies are crying poor. When Cambridge, Massachusetts, passed a 10% cap on fees (which hasn’t yet gone into effect), GrubHub threatened legal action and threatened that caps “would force us to exit certain markets and/or suffer substantial losses that threaten the sustainability of our business.” Crying poor that way is fascinating since GrubHub pulled in record revenues from January through March, and said in its earning report that “For now, COVID-19 is a net tailwind for our growth metrics.”
A net tailwind for the big delivery services, and devastation for independent restaurants. John Schall, who owns taquerias in Cambridge and in Bethlehem, Pennsylvania, explained the economics in a Boston Globe op-ed: “As take-out dining increases, delivery companies amass even more power vis-a-vis their restaurant clients. Restaurants that weren’t doing delivery or had delivery as only 5 to 15 percent of their sales are now doing 70 to 80 percent of their sales through the delivery companies. Rather than paying delivery companies 2 to 3 percent of their total revenue, they are now paying 15 to 20 percent. For restaurants which, even in good times average only 10 percent profit, this is unsustainable.”
”I will lose money in April, but the delivery companies made $25,000 off of me,” Schall told CommonWealth magazine.
”What are we supposed to do?“ Maryland chef Ashish Alfred told Politico. “We can hate them all we want, but I’d rather have 70 percent of something than 100 percent of nothing.”
Washington, D.C., Seattle, and San Francisco have set 15% caps on delivery app fees to restaurants. New York City, Chicago, Los Angeles, and Boston are all considering similar caps, some as low as 5%. Uber Eats added a surcharge to customers in Jersey City, New Jersey, and emailed all of its customers in the city whining after Mayor Steven Fulop imposed a 10% cap. “Uber is just a terrible company that only cares about corporate profits. It’s really ‘special’ how they send an email pretending to care about protecting their workers when their entire reputation as a company is based on exploiting working ppl,” Fulop responded on Twitter.
Local caps are one emerging solution—though it would be better if states or the federal government took action so that restaurants and the delivery companies weren’t working with a patchwork of local laws—and some more affordable competitors are emerging. If you think you’re avoiding GrubHub, DoorDash, Uber Eats, or Postmates by using services like Seamless or Caviar, you’re not—most of the smaller companies have been bought up. But Tock, which serves high-end restaurants (as in, 95% of the three-star Michelin restaurants in the U.S.), has expanded to offering services for restaurants to do take-out and delivery with their own staff, and Toast is similarly expanding into delivery for a flat fee to restaurants, allowing them to save significant amounts. Among the big four, DoorDash has cut its fees for restaurants with fewer than five locations.
But again, this isn't something best addressed by case-by-case or even town-by-town solutions—though when the towns are Seattle and San Francisco, it’s a significant move. If you value your local restaurants and want to see them survive the coronavirus crisis—and beyond, because this isn’t purely a shutdown problem—let your representatives know that restaurants need to be protected from this predatory oligopoly.
Disclosure: John Schall, quoted in this piece via The Boston Globe and CommonWealth, is a family friend.